Tyro welcomes the final report of the David Murray Financial System Inquiry. It reads as if long standing issues that Tyro has been raising relentlessly on behalf of start-up companies, small-to-medium businesses and Australian consumers have gotten a hearing. Tyro stands for bringing innovation and competition, fairness and transparency to the Australian banking space. And we want to encourage others to follow.
That requires access and a level playing field. Here some of the passages that encourage us:
Recommendation 16: Enhance graduation of retail payments regulation by clarifying thresholds for regulation by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
The inquiry suggests that government and regulators remove “unnecessary impediments” to innovation by “graduating” regulation – that is, “providing lower-intensity regulation for new entrants that pose smaller risks to the system.” Tyro used an Australian Deposit Taking Institution (ADI) variation, the Special Credit Card Institution (SCCI), to gain access to the banking system. That regime is expected to end effective 1 January 2015. From then on, it becomes critical that “new entrants will still be able to access core payments infrastructure, including the New Payments Platform”, and that with level playing field terms and without the full weight of an ADI.
Recommendation 17: Improve interchange fee regulation by clarifying thresholds for when they apply, broadening the range of fees and payments they apply to, and lowering interchange fees.
There is now a path to address long standing issues of injustice that Tyro raised on behalf of small-to-medium businesses and the Australian consumer. The current regulation limits interchange fees to an average of 50 basis points for credit cards and 12 cents for debit cards. The big banks used the average rule to give the major retailers big discounts and recovering those from the SMEs. The same premium transaction can cost the small retailer ten times more than Woolworth or Coles. The banks used the average rule also to transfer up to $500 million from standard card holders to premium card holders.
This practice amounted to the small-to-medium businesses funding Australia’s move to the cashless society and to the less-well-off Australians paying for the lavish privileges of the wealthy cardholders funding benefits such as air travel, overseas holidays and other lifestyle advantages.
The detail remains to be seen, but extending the caps to all cards including the companion cards and introducing hard caps instead of averages will finally reduce the ability of banks “to meet the caps by charging high fees for transactions involving smaller merchants without market power, while setting low fees for merchants with market power and high transaction volumes.”
And then lowering interchange fees all together will yield “lower product prices for all consumers, resulting from lower fees charged to merchants, and reduced cross-subsidisation.” As a byproduct, the pressure on retailers to surcharge card transactions will decline to the extent that interchange fees are lowered.
Let us face it, surcharging is the legitimate reversing of the interchange and scheme fee costs. Excessive surcharging is abuse of market power. If the recommendations are executed, we would have made further progress.